Baku, Azerbaijan, Jan. 12
By Anvar Mammadov – Trend:
Standard & Poor's Ratings Services placed its 'BBB-' long-term and 'A-3' short-term corporate credit ratings on vertically integrated Azerbaijan-based electricity utility Azerenerji JSC on CreditWatch with negative implications, Standard & Poor's said Jan. 12.
On Dec. 21, Azerbaijan removed its currency peg. S&P notes that about 81 percent of Azerenerji's debt is exposed to foreign exchange risk.
In S&P view, Azerenerji benefits from an almost certain likelihood that Azerbaijan would provide timely and sufficient extraordinary support to Azerenerji in the event of financial distress.
S&P does not expect the government to increase Azerenerji's tariffs, given its previous reluctance to do so due to social concerns, but S&P assumes the state might provide support by other means, such as paying Azerenerji's debt.
S&P base case for 2015-2016 assumes:
• A 4%-5% increase in revenues on the back of power volume growth;
• Annual capital expenditures of about 100 million-120 million manat
Based on these assumptions, S&P expects the following credit measures:
• EBITDA of 220 million-240 million manat;
• Funds from operations (FFO) of about 150 million-170 million manat;
The negative CreditWatch placement reflects that S&P could lower the ratings if the agency reassesses the likelihood of extraordinary financial state support for Azerenerji.
S&P expects to resolve the CreditWatch within the next 90 days, during which time the agency expects to gain a clearer view of the government's intentions and administrative capacity to provide support to Azerenerji.
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